Linguistic distance and mergers and acquisitions: Evidence from China

Lu Li, Yang DUAN*, Yuqian He, Kam C. Chan

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    25 Citations (Scopus)


    We use a new measure of linguistic distance and examine how it relates to the wealth effects of mergers and acquisitions using a sample of acquisitions in China. Linguistic distance between the acquirer and the target is constructed based on the map that defines the difference in level between any pair of languages in China. We find a significant negative relationship between the linguistic distance and the acquirer's abnormal return around the announcement. The findings are robust to different model specifications, institutional differences in local financial development, and after accounting for multicollinearity between linguistic and geographical distances and the potential social networks between acquirers and targets. The negative effect of linguistic distance is more pronounced when: (1) the deals are not in high-tech industries, (2) acquirers are not from Putonghua popular areas, and (3) acquirers are not from a linguistically diverse area. Further analysis suggests that top management's dialect experience is valuable to the acquirer's shareholders in mergers and acquisitions. Our findings suggest that cultural distance matters in corporate decisions.

    Original languageEnglish
    Pages (from-to)81-102
    Number of pages22
    JournalPacific Basin Finance Journal
    Publication statusPublished - Jun 2018

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • Cultural distance
    • Linguistic distance
    • Mergers and acquisitions


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